Why's Vermont's Minimum-Wage Law Kind of a Big Deal?

It's the latest state to raise the minimum wage and the first this year that already linked automatic increases to inflation.

Vermont made national headlines May 14 for passing legislation that would set the minimum wage at $10.50 an hour by 2018, the highest in the country.

“Vermont has set a new bar,” said Jack Temple, a policy analyst at the National Employment Law Project, an advocacy group in favor of increasing the minimum wage.

Six other states have enacted laws in 2014 to raise their minimum-wage requirements: Delaware, Maryland, Hawaii, Connecticut, West Virginia and Minnesota. The laws vary in terms of pay level (anywhere from $8.25 to $10.50) and the timing of the increase (from 2015 to 2018). The federal minimum wage, which has not changed since 2009, is $7.25 an hour. Workers who make no more than the federal minimum wage have seen the value of their pay diminish relative to rising consumer prices since 2009.

Below is a summary of the states that have passed minimum-wage laws in 2014 and their basic differences.At the start of this year, Vermont already had the third highest minimum wage in the country at $8.60 an hour. Temple said the main significance of Vermont's new law is that Vermont is the first state this year with an indexing provision on the books to decide to raise the minimum wage even higher. By comparison, the three states that scheduled their minimum wage to reach $10.10 (Hawaii, Maryland and Connecticut) did not link automatic increases to inflation. Unlike Vermont, lawmakers in those states would need to address the issue again through legislation, or else risk seeing the minimum wage lose its purchasing power over time.

While Vermont currently appears positioned to have the highest minimum wage in the country by 2018, other states that index to inflation should be close behind. Washington state, for example, has a minimum wage of $9.32 an hour this year. Applying national inflation projections from the Congressional Budget Office to Washington, the state would see its minimum wage go up by about 12 percent, to $10.46, by 2018.

As with the country as a whole, the value of Vermont's minimum wage has fluctuated over time. It had the most purchasing power in the late 1960s, when workers couldn't be paid less than $11 in today's dollars. See below for a line graph showing the changes in the effective or real minimum wage since 1956, according to an April 2014 report by the Vermont Legislative Joint Fiscal Office.

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